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July 08, 2021 | GSAM Connect

A Tax-Aware Approach That Goes Beyond Taxes

As investors, we believe it’s not what you earn, but what you keep that matters. That’s why we’ve been focused for more than two decades on capturing the full stock market return while enhancing an investor’s performance by capturing tax alpha—the added value that sound tax strategies can bring to an investment portfolio.

We believe tax management is a critical portfolio management tool, but it is not the only one. Investors are increasingly focused and deserve investments that can be individually customized to do things such as align with investor values or reduce exposure to certain risks, focus on enhanced income or particular factors. In order to deliver that solution, Goldman Sachs Asset Management offers separately managed accounts that can be customized to individual needs.

The investment technique of designing highly customized, tax-efficient, value-aligned portfolios is also known as Direct Indexing. Direct Indexing strategies seek to replicate the performance of an equity index by owning the underlying stocks through a sampling process. This ownership makes it easier to customize a portfolio to address a range of important investment objectives. For example, an investor may want to align her investment with her personal values. Directly investing in individual stocks make it easier for her to pursue this and other goals.

Our portfolio management philosophy is built around several of these core considerations:

  • Taxes: Tax costs from realized capital gains can significantly erode wealth accumulation. With our systematic, tax-advantaged approach, we regularly harvest capital losses to offset portfolio gains seeking to reduce our clients’ tax liabilities, while also avoiding capital gain recognition. This strategy is known as “tax-loss harvesting.”
  • Risk Management: Our portfolios need to be managed in such a way that no unintended sacrifice is made on the total return or economic experience of a portfolio in pursuit of tax savings.
  • Wealth Accumulation: Through a tax-efficient, fee-efficient strategy, we strive to help investors keep more of what they earn and enhance the power of compounding over a long-term horizon.
  • Value Alignment: We believe in empowering our clients to align their portfolios with their personal values (e.g., environmental, social, or faith-based considerations), while still managing risk and helping clients meet their investment goals.
  • Analytical Transparency: Investors should have the ability to evaluate and control the risk profile of their portfolio, from tracking error, to tax costs, to factor exposures. Our systematic approach offers clients the ability to tailor their portfolio to their investment objectives.
  • Diversified Market Exposure: As an alternative to market cap weighted benchmarks, investors may also consider diversifying their exposure with alternatively weighted indexes that are sensitive to risk and equity valuation.

By implementing our philosophy on a platform developed over more than two decades, we are able to offer investors highly customized, tax-aware, risk-managed solutions. Our fee sensitive portfolios offer similar benchmark-aware exposure to passive investments—but with the benefit of active risk management and tax-loss harvesting.

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About the Author

Monali Vora

Monali Vora

Head of Customized Beta Strategies, Goldman Sachs Asset Management

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